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TAX PREP: EASY AS 1 - 2 - 3

Do you get
wet under the arms when you think about doing your taxes?

Here are a few tips
for making the process a little less daunting.

Get a cup of coffee (or wine if
necessary). Plan to separate the job
into a few separate sessions. Gather together all the tax related documents
you’ve been saving throughout the year as well as a copy of last year’s taxes. This can include pay stubs; bank, loan, retirement
account or mortgage statements; assets sales receipts noting gains/losses (such
as stocks, vehicles, or residential property); expense or deduction receipts;
insurance or annuities; and interest paid/interest deductions, such as student
loan interest.

Call your
CPA to schedule your appointment. This will give you the deadline by which to
get the job done. Pat yourself on the back. You’ve taken the first step.

Next you
need to clear a big work surface or plop yourself on the floor. If you’re on
the floor make sure the dogs and cats aren’t going to trample over your work.

Now divide
the papers into 3 piles.

Pile 1:
Everything related to the IRS and your state tax agency including last year’s
tax return.

Pile 2:
Everything related to your income.

Pile 3:
Everything supporting your deductions.

Great Job! Refill
the coffee cup.

The good
news is you don’t have much to do with Pile 1. Just paperclip the pile and put
a sticky note on it saying “Ready for CPA”. The CPA is best trained to deal
with this pile.

Pile 2 is
usually pretty easy, too, unless you are a rock star with tons of royalties or
other sources of income. Compile your W-2’s, 1099’s and year-end brokerage
statements. If you are self-employed, you will need to calculate your gross income
from goods and/or services.

Check last
year’s tax return (Pile 1) to make sure you haven’t missed any sources of
income.

Now is a
good time to end this session and schedule the next one on your calendar. Give
yourself kudos for getting this far.

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Session 2:

Pile 3: Clear the decks and shoo out the dogs and cats. Do you have your coffee
(or wine) yet? You’ll need it for this session.

Pile 3 takes
the most time. Deductions are where you can whittle down your taxable income. Pull
out last year’s tax return to use as a reference of all your deductions. Using
a large tablet, or spreadsheet, create columns for the different categories;
i.e., mortgage or rent payments, medical insurance, doctors, prescriptions,
charitable contributions, non-cash donations (remember when you de-cluttered
the garage and donated the old cat carrier?) etc.

Starting
with your credit card statements, go through month by month, line by line and
pick out any deductible items and jot them down under the appropriate category.
When you add them to your spread sheet or tablet, include the date, name and
amount so you won’t have duplicates. Now grab
your check register and do the same.

If you’re
out of steam, take a break and schedule the final session on your calendar.

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Session 3:

Pile 3 (continued): Now that you’ve gone through your credit cards and check book you might want to go
through your receipts, if you save them, and look for anything that you paid
for with cash and can add to one of the deduction categories. Locate the
receipts for non-cash deductions and attach to pile 3. Grab your calculator and
add up each column and jot down the total.

If you are
self-employed, it’s a bit more work to get organized. Track down all receipts
and documentation for business related expenses and mileage records. Remember
office equipment, supplies and even the utility bills.

We recommend
designating a specific file folder or envelope for the current year’s tax
related papers and locating it in an easy access place. Put every receipt, IRS
letter, tax form or other paper that you think might apply to your taxes in
here as you come across it. This will make next year’s tax preparation easier.

Congratulations,
now you can get up off the floor and walk the dog, feed the cat and know you are
ready for your appointment with the CPA.